CO129-619-4 Department of Supplies- Trade and Industry- organization and finance 19-3-1949 - 31-3-1949 — Page 47

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balance which may be due to the Hong Kong Govement, however, I have seen only a copy of a telegram dated 6.10.47 from the Government's then honorary agent in Japan roading

theoretically SCAP will pay all balances in dollars

and I have accordingly enquired from the Financial Secretary whether a written acknowledgnant of this obligation has been obtained fran the Supreme Cannader for the Allied Powers and a reply is awaited. I have not, however, been infomed as to what, if "fixed intèrvals" have been arranged for settlement of balances nor as to the "pre-arranged rate" for settlement.

any,

32.

It appears that at the time when the original arrangements were made, the Supreme Commander for the Allied Fowers required that all imports from, and exports to, Japan should be handled by the Hong Kong Government. While Government was therefore obliged to act, technically, as a principal "vis a vis" the Suprane Commander for the Allied Powers, in effect, orders for goods imported fra Japan were placed with SCAP by Government at the request of local fims, who, on acceptance of the order by the Supreme Commander for the Allied Powers, were required to pay a deposit and sign an undertaking to accept delivery. On arrival, the goods were "sold" to the local firm at landed cost plus Govemment's profit percentage, which it is understood was fixed at 10 until 15th August, 1947, when it was reduced to 22 by the Ac ting Director. Goods exported to Japan were purchased by Government from local firms for cash and shipped at Government's risk (which was covered by insurance) for salo to SCAP in Japan at landed cost plus Goverment's profit percentage. In respect of imports from Japan, Government, therefore, assumed a possible liability to pay United States dollars in Japan and received Hong Kan g dollars on the local sales, and in respect of exports to Japan, Government paid out Hong Kong dollars locally and received a credit in Japan in tems of United States dollars for use in making further purchases from Japan. The conversion rate used was the official rate of exchange between Hong Kong dollars and United States dollars, i.e. U.S.$1 = H.K.$3.975 calculated on the basis of H.K.$16 Si (stc) = U.S. .025.

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As from September, 1947, trade with Japan was opened to private traders, though the numbers permitted to unter Japan were limited by the Supreme Commander for the Allied Powers. It appeared, therefore, that it was no longer necessary for trade betwoon Hong Kong and Japan to be handled by Goverment on behalf of private traders, but in a memorandum addressed to the Accountant General dated 12th September, 1947, a copy of which was sent to this Department, the Acting Director stated that the Financial Secretary had agreed that "in the interim period before trade could be carried on on a sterling basis (that) the (S.T. & I.) department should continue to pass all trade through the two-way account with SCAP". It was also stated that Government was prepared to act as a "banker" for local traders who made contracts direct with Japanese traders by accepting liability to the Supreme Commander for the Allied Powers in terms of United States dollars for imports and receiving Hong Kong dollars from the local importers at the equivalent of the bank's selling rate of exchange between Hong Kong dollars and United States Collars and, in respect of exports to Japan, receiving credit from the Suprone Commander for the Allied Powers in terms of United States dollars and paying the local exporters in Hong Kong dollars at the equivalent of the bank's buying rate of exchange between Hong Kong dollars and United States dollars. charge made for arranging transactions on this basis was fixed at 12%. The "selling" and "buying" rates to be used were arbitrarily fixed at Hong Kong $4.02 U.S.1 and Hong Kong $3.95 U.S.$1 respectively, from which it would appear that it was being assumed that settlement of any balance between the Hong Kong Government and SCAP would be effected at the official rate,i.o. H.K.$3.975 = U.S.$1. As stated in paragraph 31 above, however, I have not yet been informed of the agreed rate for settlement with SCAP,

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